Tuesday, 15 September 2009

Cut tax avoidance? Make the whole system simpler

Richard Murphy has published an extract from Unite's policy and a speech made by Derek Simpson, the joint leader of Unite, at this year's TUC.

In brief, Unite put the blame for the current recession squarely on the shoulders of the super-rich and big business who avoid paying their share of tax, then leave working- and middle-class families to pick up the pieces and bail out the banks.

They urge the government to close tax loopholes to prevent such large-scale tax avoidance, rather than cutting spending on public services.

I agree wholeheartedly with that. Cutting spending on public services would make unemployment worse in the short term because scores of public sector workers would find themselves out of work, and would damage the long-term economy, for the reason I've explained below.

At the moment we're seeing economic improvement, but that's only because money has been pumped into the economy. It's like an investor watching the share prices of a company rise and not realising that's only because he's bought a large block of shares.

For long-term economic recovery we need investment in public services, not cuts.

For example, it's education that can help people out of the poverty trap. Cut state education and you damage the chance of an intelligent child from a working-class background being able to achieve good exam grades, a place at university and a fulfilling and well-paid career. And that would damage the long-term economy, because that person, instead of having a well-paid job and paying more in tax as a consequence, could be forced to take a low-paid job and hence pay less tax.

Cutting public spending is not the answer.

Cutting tax avoidance is a much more satisfactory policy.

But I think that rather than a piecemeal closing of loopholes, it's time for the entire tax system to have a gigantic overhaul and be made much more simple.

As I meet with more micro-business clients of my practice, I come to realise even more that the tax system is cumbersome and so complicated that it's become impossible to run efficiently and easily.

Daily there are comments on Accounting Web about mistakes and inefficiency from HM Revenue. To that I say - HM Revenue is not the demon king. They are trying their best (at least the staff at the Cumbria Area, who are very friendly and helpful, are) to operate within a hugely overloaded, hugely complicated system.

We humans have made the world far too complicated for its own good.

To paraphrase a quote from the recent excellent BBC docu-drama about the collapse of Lehman Brothers - sometimes a return to an economy based on "goats and pebbles" seems very tempting.

Though I wouldn't recommend going that far :-)


  1. "For long-term economic recovery we need investment in public services, not cuts."

    The government can't pull the economy up by its bootstraps. You are right that higher government spending has flattered the GDP figures, but with total GDP down 5% and government spending up 5%, the difference (private sector activity) is down 15%, or mathematically -5% = 50%*5%-50%*15% if you want the proof.

    Public sector spending is now 50% of GDP which is communist-bloc or wartime levels of spending, and cannot per se cause the economy to grow.

    Education will help, but at the moment I have a daughter who has just graduated with a 2:1 from Oxford who can't get an interview let along a job, just like 45 of the other 50 graduates who have left her college this summer.

  2. Is it really plausible that tax alone is the solution? It's certainly not what Vince Cable thinks


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